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A message from our President and CEO

600 to 650
HealthHUB locations by the end of 2020
Transform Oncology Care is available in
14 states

Dear Fellow Stockholders:

This past year was a remarkable one for CVS Health. We completed our first full year as a combined company with Aetna, and I am pleased with the progress we achieved in executing on our strategic priorities. We have set a clear and bold path for CVS Health to be the most consumer-centric health company. Powered by our unmatched collection of integrated assets, we are transforming the way health care is delivered in the United States.

As consumers take a more active role in their health care decisions, we have the ability to deliver health care when, where and how consumers need it. That could happen in the community, right at home or in the palm of the hand through one of our digital products. We have CVS Pharmacy retail locations within three miles of nearly 70 percent of the U.S. population, and the frequency of our consumer interactions provides us the opportunity to introduce and expand our programs and services into consumers' existing routines.

CVS Health offers an array of products and services, including pharmacy benefit management (PBM) services, mail order and specialty pharmacy, and retail and long-term care pharmacy services. We also offer health care benefits products and services, Coram® infusion and Accordant® nurse care management services. Taken together, these integrated assets allow us to engage with about one in three Americans every year. Additionally, we now use text messaging to engage with more than 80 million people who are enrolled in our text messaging program across our Enterprise.

Before I delve more deeply into our transformation and review the past year's financial performance, I want to update you on some of our efforts at mitigating the impact of the Coronavirus (COVID-19) pandemic.

We quickly assembled CVS Health's leadership and colleagues. During this unprecedented and uncertain time, our first priority has been the well-being and safety of our employees, consumers, members and the communities we serve. As part of a multi-faceted response, we waived the fees on home delivery of prescriptions and front store items. In our Health Care Benefits segment we waived co-pays for any telemedicine visits and eliminated out of pocket costs for COVID-19 diagnostic testing. We also partnered with the U.S. government to open a local COVID-19 testing site to help facilitate increased frequency and efficiency of testing. I encourage you to visit as we continue to provide updates on our initiatives.

In 2019, CVS Health posted record revenues and strong cash flow while achieving significant cost-saving integration synergies from the Aetna acquisition

  • Total revenues for the year increased by 32.0 percent to a record $256.8 billion, with operating income and adjusted operating income totaling $12.0 billion and $15.3 billion,* respectively.
  • GAAP diluted earnings per share (EPS) from continuing operations rose to $5.08, with Adjusted EPS at $7.08.*
  • Cash flow from operations increased by 44.9 percent to $12.8 billion, and we continue to take steps to further strengthen our balance sheet by reducing debt and our leverage ratio.
  • In 2019, we delivered approximately $500 million of cost-saving integration synergies from the Aetna acquisition, ahead of our initial goal of $300 million–$350 million.

* Adjusted operating income is a non-GAAP financial measure. A reconciliation of operating income to adjusted operating income is provided on page 163 of our Annual Report. Adjusted EPS is a non-GAAP financial measure. Calculations of Adjusted EPS are provided under the heading “Reconciliation” in the back pages of our Annual Report.

We are making meaningful progress across our four Enterprise-wide priorities

The following four Enterprise-wide priorities guide our long-term growth strategy and support our vision for improving health care:

  • Growing and differentiating our businesses;
  • Delivering transformational products and services;
  • Creating a consumer-centric technology infrastructure; and
  • Modernizing Enterprise functions and capabilities.

I touched briefly in last year's letter on the HealthHUB® concept locations we had just begun rolling out in Houston. Our progress since then offers just one example of our successful efforts at differentiating CVS Health. As a new retail engagement model, HealthHUB locations provide customers with a convenient and compelling destination to manage their overall health—from prevention and wellness to chronic disease management. They include care concierges, a curated selection of health and wellness products and new MinuteClinic® services such as in-clinic blood draws and enhanced screenings.

In 2019, we created more than 50 HealthHUB locations in Houston, Tampa, Atlanta and Philadelphia. We expect that number to rise to between 600 and 650 by the end of 2020 and to 1,500 locations by the end of 2021. To date, our HealthHUB locations have outperformed their control group with higher prescription volume and increased MinuteClinic visits. In our HealthHUB locations, front store sales have been in line with our expectations, and we have seen increased utilization of health-related services. In addition, over time, we expect our Health Care Benefits medical costs to be positively affected by our medical members meeting their needs at HealthHUB locations.

Among our transformational products and services, we continue to advance innovative pilot programs and introduce new offerings. For example, we began rolling out Pharmacist Panels at our HealthHUB locations, and we see an opportunity to expand this program to other retail locations. These panels provide a holistic, 360-degree view of a patient by combining pharmacy and medical data. By having integrated data at their fingertips, our pharmacists can improve medication adherence, optimize medication regimens, close gaps in care and connect patients to their health plan, a MinuteClinic or other appropriate local resources.

We are also excited about our Transform Oncology Care® program, which includes a precision medicine approach that helps patients receive the most effective cancer treatments and matches eligible patients to clinical trials when appropriate. The program is now available in 14 states. Transform Oncology Care utilizes our local footprint and unique assets to improve outcomes and lower overall costs at every point of the patient journey.

In 2016, Medicare fee-for-service spent approximately $114 billion to cover people with kidney disease, representing more than one in five dollars spent by the traditional Medicare program.* During 2019, we continued our entry into the kidney care space with the launch of our chronic kidney disease (CKD) management program to help patients with CKD delay the progression of the disease. This program currently is available to approximately 3.5 million people across Aetna and 14 other PBM clients. This program is one part of our portfolio of approaches to managing end-stage renal disease, one of the biggest burdens on the health care system. We are also making progress in the clinical trial of our home hemodialysis device.

* Advancing American Kidney Health, U.S. Department of Health and Human Services, page 3 (2019).

Our CarePass® subscription service is one example of our consumer-centric technology. CarePass went live nationally in late 2019 and already had enrolled 1.6 million members as of December 31, 2019. CarePass offers a variety of perks for a $5 monthly fee, including free prescription delivery, a 24/7 pharmacist helpline, $10 in ExtraBucks® and 20 percent off CVS Health brands every day.

Lastly, we continue to make progress in our efforts at modernizing functions and capabilities across the Enterprise. We expect to reap the initial benefits of Enterprise Modernization in 2020. We have aligned teams around simplifying our service operations and have embedded intelligent automation to streamline routine processes and further advance our digital footprint. We believe we remain on course to generate $1.5 billion to $2 billion in run rate net savings in 2022. The benefits we expect from Enterprise Modernization are in addition to the integration synergies from the Aetna acquisition I mentioned earlier.

Integration and modernization are driving significant savings.

We are focused on strengthening our business by working across the Enterprise to create incremental operating income and position CVS Health for sustainable growth. We have robust opportunities, including integration synergies and Enterprise modernization. These initiatives are designed to make us more efficient and increase cash available for enhancing shareholder value.

Integration and modernization

Integration synergies

Business integration

  • Plan design
  • Specialty / Coram / PBM Operations / Other

General & administrative functions

  • Vendor contracting
  • Streamline corporate functions

Medical cost savings

  • Improve adherence and close gaps in care for patients with chronic diseases
  • Optimize existing programs in readmission prevention
  • Site of care management
On track to deliver run-rate synergies of
in 2021 and beyond

Enterprise modernization

Areas of net savings

  • Technology modernization
    • Rationalization
    • Centers of excellence
  • Productivity improvements
    • Optimize call centers
    • Vendor management
    • Business initiatives
Targeting savings of
$1.5B to 2.0B
in 2022 and beyond
out-of-pocket program for diabetes care launched this year
of Medicare Advantage plan members enrolled in plans with 2020 star ratings of at least 4.0 stars
of the scope of a typical primary care practice can be addressed by MinuteClinic
"A" score
on the CDP Climate Change Survey
2018 CSR Report

Pharmacy Services segment revenues and operating income continued to rise while our PBM offered new solutions for plan members

Our Pharmacy Services segment total revenues rose 5.0 percent to $141.5 billion in 2019. Operating income for the segment increased 2.8 percent to $4.7 billion. A key revenue driver was higher volume from a 6.6 percent increase in pharmacy claims processed. Our operating income benefited from increased claim volume, the addition of Aetna's mail order and specialty pharmacy operations and improved purchasing economics.

We saw an improvement in the 2020 selling season results over the course of the year with gross new wins totaling $5.1 billion, which included the extension of our Centene contract through 2022. The 2021 Pharmacy Services selling season is off to a strong start. By mid-February 2020, we had completed approximately 65 percent of 2021 Pharmacy Services selling season renewals with strong retention of our existing business. That includes the extension of our Federal Employee Health Benefits Program contract and the renewal of our WellCare contract. We gained some valuable insights during the last selling season that are helping us go to market with the right set of offerings. Importantly, clients and prospects have shown a high level of enthusiasm for our integrated offerings, including our HealthHUB expansion and the role we are playing to improve medication adherence and drive down the cost of care.

Data clearly shows that PBMs are highly effective in reducing the net cost of care. The dollars we save are passed back to consumers, whether it's at the pharmacy counter, in point-of-sale rebates or in the form of lower monthly insurance premiums. Our PBM's multiple capabilities, including our advanced approach to formularies, help our efforts to slow the rate of drug spending growth. We also recently announced a new $0 out-of-pocket program for diabetes care. We expect enrolled members on average to save an estimated $467 per year in out-of-pocket expenses.

Our Health Care Benefits segment delivered strong performance in its Medicare and Medicaid products and is utilizing Enterprise offerings across its book of business

In 2019, our Health Care Benefits segment delivered total revenues of $69.6 billion and operating income of $3.6 billion. After successfully broadening its customer mix to include more self-insured companies and expand its Medicare Advantage membership base, Aetna also is well positioned for growth in 2020 and beyond. Based on our December 31, 2019, membership, 83 percent of our Medicare Advantage plan members were enrolled in plans with 2020 star ratings of at least 4.0 stars, up from 79 percent of our Medicare Advantage members with 2019 star ratings of at least 4.0 stars based on our December 31, 2018, membership.

I'm particularly excited about our new zero-to-low co-pay at MinuteClinic plan options for Commercial members and Healing Better, a hospital-to-home after-care program that we have incorporated into Medicare Advantage plans in select geographies for 2020. Healing Better is designed to improve the recovery process from joint replacement procedures, and it is yet another example of our ability to harness multiple Enterprise capabilities to improve the patient experience.

Among our other Medicare Advantage pilots, Aetna Community Care is our innovative, face-to-face care management program aimed at addressing the social determinants of health. We launched the program in four service areas across three states in 2019 and expect to scale nationally across our Medicare Advantage footprint in 2020.

In our Medicaid products, we were recently awarded new members in the West Virginia children and youth program and the Florida Healthy Kids program. These wins speak to the strength of our services and capabilities and have allowed us to build upon existing relationships with two important state partners.

In 2019, we also applied our proprietary NovoLogix® technology across our Health Care Benefits book of business, which should drive cost savings and efficiencies for clients. NovoLogix helps our clients manage the specialty pharmacy claims that are typically covered by health plan benefits rather than pharmacy benefits and has helped our PBM clients generate approximately $42 million in annual savings per million lives enrolled.

Turning to our Medicare Part D products, SilverScript® remains the nation's leading standalone prescription drug plan (PDP). As we look ahead, we believe our SilverScript PDP members will be an important source of membership in our Medicare Advantage plans.

Patient care solutions drove strong performance in our Retail/LTC segment

Total revenues rose by 3.1 percent to $86.6 billion in 2019 in our Retail/Long-Term Care segment. Despite continued reimbursement pressures, this business benefited from increased prescription volume. Total prescription volume grew by 5.8 percent on a 30-day equivalent basis compared to 2018. In fact, our prescription growth significantly outperformed the industry average in 2019. We dispensed approximately 26.6 percent of the retail prescriptions in the United States for the year on a 30-day equivalent basis.

Our approximately 1,100 MinuteClinic locations continued to expand their offerings in 2019. In fact, MinuteClinic can now address about 80 percent of the scope of a typical primary care practice. When a doctor is needed, MinuteClinic locations offer Video Visits in collaboration with Teladoc in 40 states and Washington, D.C.

I am also proud to note that the health care professionals who staff our MinuteClinic locations have earned a Pathway to Excellence designation from the American Nurses Credentialing Center for the quality services they provide. MinuteClinic is the first and only retail clinic to receive this elite designation.

Retail front store revenues rose by 1.9 percent and gross margins expanded primarily due to increases in health and beauty product sales and the success of our personalization strategies. The ExtraCare® loyalty program continues to be a key point of differentiation, helping us understand and anticipate the unique needs of each customer and enabling us to personalize our outreach and savings opportunities.

Dow Jones and CDP acknowledge our corporate social responsibility (CSR) performance in key industry rankings

CVS Health has long been a leader in corporate social responsibility. In 2019, we earned a place on the Dow Jones Sustainability Index for the seventh consecutive year, as well as being named to the prestigious World Index for the first time. This exclusive list includes the top 10 percent of the largest 2,500 companies in the S&P Global Broad Market Index based on economic, environmental and social criteria. We also received a score of “A” on the CDP Climate Change Survey for our leadership actions to address climate action and related climate risks.

You can read more about our CSR activities on page 8 of this Annual Report, including our new Transform Health 2030 Framework. This ambitious new roadmap will guide our CSR activities over the next decade. I also encourage you to read the CVS Health 2019 Corporate Social Responsibility Report, which is available on our corporate website.

In closing, I want to acknowledge the commitment of our nearly 300,000 colleagues across CVS Health. Their dedication makes our success possible and gives me many reasons to be enthusiastic about our plans for 2020 and for many years to come. We believe our ability to drive higher engagement, reduce costs and create better health outcomes will ultimately accelerate our revenue and earnings growth over the long term.

Thank you for your investment in CVS Health and your belief in our mission to transform the way health care is delivered to millions of Americans daily.


President and Chief Executive Officer

Larry J. Merlo
President and Chief Executive Officer

April 3, 2020